Singapore's indirect tax rate still among region's lowest

7% rate remains low despite global trend making goods and services tax key government revenue source.

At seven percent, Singapore’s GST rate still remains among the lowest in the Asia-Pacific, and well below the current Asia-Pacific average of 10.8 percent. This is according to KPMG’s latest Asia-Pacific Indirect Tax Country Guide: Navigating the changing landscape.

Around the world, indirect taxes are becoming an increasingly important source of revenues for governments. The Asia Pacific region too, is in the midst of a period of considerable change in the regional indirect tax landscape.

However, with the implementation of indirect tax systems still fairly new in the Asia-Pacific region, the average rate still fell below that of the global average, which stands at 15.25 percent.

“Competition for foreign indirect investments between major economies in the region is intensifying,” says Mr Lam Kok Shang, Head of Indirect Tax at KPMG Tax Services in Singapore,

“This competition means that while the Singapore Government may not raise direct tax rates, they are likely to increasingly turn to indirect taxes as a key tax tool in managing the fiscal budget.”

He added, “If the Government needs to recoup economic stimulus spending, GST may be the obvious target. We are therefore seeing an increase in tax audit activity, which suggests there is pressure to raise tax revenues in part through stricter compliance and enforcement.”

Situation in the Asia-Pacific
In the Asia-Pacific region, a number of countries are currently considering, or are in the process of implementing, substantial reforms of their indirect tax systems: China, Malaysia, India, Australia and New Zealand.

India is introducing a Federal GST in addition to its current state-based indirect tax system. Malaysia may introduce a GST in 2011 to replace the existing services tax and sales tax on goods, and China is moving ahead with introducing a new federal VAT system by 2013.

Recent inter-governmental summits in the region, such as the Asia-Pacific Economic Cooperation (APEC) Summit held last year in Singapore, have also seen discussion of increasing convergence of the different indirect tax systems within the region. This convergence however, if it happens, is likely to be many years off.

Currently, the indirect tax landscape in the Asia-Pacific region is notable for its diversity.